Investigating Income Effects in Scanner Data : Do Gasoline Prices Affect Grocery Purchases?

In this paper we use sharp changes in gasoline prices to estimate the impact that short run changes in disposable income have on measures of consumer price sensitivity at the grocery store. We use weekly store level scanner data from 180 West Coast grocery stores for products (UPCs) in frequently purchased food categories. We find evidence that consumers adjust to higher gasoline prices by substituting within a category towards products that are on sale (i.e., on promotion): the fraction of purchases from sale items increases significantly with gasoline prices. The effect is generally stronger at stores serving lower income families. Additionally, we find that the quantity weighted price paid for products decreases when gasoline prices increase; consumers are able to save money on groceries by shifting purchases towards promotional items